Yield-Generation is the talk of the town within DeFi and Overnight has been accomplishing exactly this with its Flagship Stablecoin — USD+! The Stablecoin earns its holder(s) yields simply by holding it and the yields are accrued from its curated investment strategies. Being a Fully-Collateralized stablecoin, it deploys its collateral across a plethora of yield-generating Liquidity Pools.
Before the yields are passed on to their holders, strategies having an allocation in the portfolio (collateral) undergo a rigorous vetting process by its team of pundit DeFi analysts dedicated to this purpose. Overnight conducts a thorough assessment of potential and prospective strategies; in doing so, the protocol adopts a rather modest and risk-averse approach. For instance, there are hundreds of Liquidity Pools on Polygon alone yet Overnight settles on less than 4–5 of these strategies owing to its industry-renowned standards. With that said, this article takes you through some of the basic steps employed by the protocol to ensure that its investments are in good hands!
Step 1: The Hunt: Scouting for existing and new protocols
The investment methodology starts right here and is the most extensive part. The Overnight team devotes considerable time and effort to manually searching for protocols that it deems to be worthy specific to the chain that it’s Yield-Farming on — after all, diversification is key! It does this through searching via DeFil lama, staying up-to-date on launches, etc. However, the team is, for the most part, aware of all prospective protocols that it wishes to integrate with and has established communications with them — thereby reducing the hassle(s) involved in doing so. In addition, the community plays a considerable role in bringing up new opportunities that Overnight later delves into.
Being on a total of 4 chains requires staying up to date with happenings on each of them and the Overnight team specializes in exactly this. Possessing a well-versed background in Finance (DeFi & TradFi), the intuitive ability to instantaneously point out what Liquidity Pools are worthy on integration(s) goes a long way!
Step 2: Risk-Assessment: Analyzing associated risks and Liquidity
After a new protocol or a set of protocols have been narrowed down, the next step is a thorough risk assessment. Several factors are taken into consideration here including liquidity, slippage, APRs (Annual Percentage Returns), etc. A Liquidity Pool with insufficient liquidity or a token with a high price impact upon being liquidated are outrightly rejected regardless of APRs.
The protocol goes into considerable length to avoid being subjected to a 100% utilization ratio for a deposited liquidity pool (i.e, all available funds are borrowed therefore none can be withdrawn) and at all costs avoids trades with a slippage >0.1%. Thus far, a thorough due-diligence process has managed to negate any such happenings since inception. The key, as Overnight’s Due-Diligence team outlines have been to stick with prominent stablecoins (USDC, USDT & DAI) and blue-chip protocols that amass sufficient liquidity. Examples include Synapse — a stableswap with $100M in TVL — and AAVE — DeFi’s largest money market.
Step 3: Security First: An In-Depth Review of the Protocol’s Code
It may be said that audits are quintessential before an individual seeks to interact with a given smart contract. The purpose of audits is to prove that smart contracts are working as intended; an audit entails an expert team of auditors scrutinizing the code for any vulnerabilities that may arise during the protocol’s life span.
However, even with the availability of said audits, Overnight goes above and beyond in terms of security. It does not solely rely on third-party audits and always conducts its own research. Its team of solidity engineers (the computing language used by EVM Compatible Blockchains) carry out a manual assessment of the protocol’s code and report any vulnerabilities to the concerned team if such a situation arises — albeit its chances are relatively low.
Step 4: Internal Testing: Exploring Value Accrual from the Strategies
After the assessment outlined above concludes, the protocol moves new strategies into testing directly on mainnet. This is where they’re monitored to ensure that the returns are as forecasted, making sure that there aren’t any hidden impediments that arise upon withdrawals/deposits, etc. Testing involves interacting directly via the smart contracts for functions such as mint/redeem/reward, etc.
This step is the final safeguard therefore this stage involves Yield-Farming as you normally would and is carried out with a fund dedicated to this purpose.
Step 5: Time to Integrate: Deployed to Portfolio
After the extensive process outlined above reaches its conclusion, the strategy is then integrated on mainnet starting off with a small allocation of the total portfolio and gradually increased to match the desired allocation.
Step 6: Consistent Monitoring: Post-Integration Scenario
DeFi is rather fast-paced and hence, situations (profitability, liquidity, etc) can constantly change subject to circumstances as they arise or as amended. For this purpose, consistent monitoring of the steps outlined from 1–5 is carried out at regular intervals.
Closing Remarks
The hassle of investing within DeFi is rather unintuitive to the wide majority of users and a lot goes in than what meets the eye. Staying up to date on DeFi happenings is also rather inconvenient for those concerned.
Overnight solves the obstacles outlined above and makes Yield-Farming as simple as buying a token. Upon acquiring USD+, the user earns yields/accrual from its collateral (a forecasted of 8–12%) deployed across a multitude of liquidity pools and diversified portfolios. In addition, it also serves the purpose of a money market fund equivalent within DeFi prioritizing liquid assets.
